House prices to keep rising for years

[Aussiejeff]

I think perhaps they're all out there spending $3 on a latte' like robots and nothing else.

Retailers are going broke by the truckload, so the people are out there but not spending.

It's the mod way of life, man.

Peeps gotta try "keeping up appearances" with one's peers, donch'a know?

Maintain that facade ... that's all that matters.

Life's a doozy.

Chill.



PS: Wot's with the crazy Herald Sun announcing this alleged $900 Million hit on defaulting mortgagees? 1,400 homes repo'd? Are they mad??

 

[Beej]

Last week I was up the Gold Coast and there was plenty of building still going on. I was staying in Burleigh and there was a couple of new high rises going up. Near the Miami pub close to the Ford Dealers on the main drag there was a 5 story new apartment block across the road. They wanted 495k for a 1 br unit. Are they kidding themselves? Who's going to pay that and live on a 6 lane highway? The whole building was empty, no one living in it, nothing appeared to be sold. Sometimes I think developers are kidding themselves. I see inventory everywhere on the Gold Coast but as for Sydney we have no more land, the Northern Beaches is built out. You really need to pick your areas in this business. I am not an expert on the Gold Coast but I can see problems of over priced supply emerging.

Are any of the full-on property bears from Sydney?

It's interesting but I still think all the angst is from people who live in area's other than Sydney who have freaked out as they watched R/E sky-rocket in the past few years. Meanwhile, everyone who lives in Sydney seems to have come to terms with expensive property (if you want to live close to the city, beaches etc anyway), 30-40 years ago, and simply plans their financial life accordingly, rather than praying for a great crash. And besides, prices in Sydney have hardly moved for 5 years anyway, and there are as many cheap/affordable suburbs as there are really expensive ones, so it's really hard to understand down here what all the fuss is about.....

I still reckon there is a high probability the median house price in Sydney will have ticked up slightly this quarter when the stats come out.

Cheers,

Beej

 

[kincella]

Beej,
seems like frenzied discussions about house prices....more so on the keen thread...going on this weekend...this site...or just the same people egging it on...

 

[Jikx]

Question to all those Housing bulls.

How can prices possibly be mantained if:

1. Credit availablity has been constricted massively?
2. Unemployment rate keepy going up?

Even people with relatively stable jobs, the banks are more reluctant to lend and do so at a lower level. Whatever the demand is for housing, the fact that the amount of money that people can borrow has dropped a lot translate to much lower prices?

 

[Knobby22]

From Steve Keens blog. You can have a look at his graphs supporting the case on the site. http://www.debtdeflation.com/blogs/

FHB Boost is Australia’s “Sub-prime Lite”Published in March 22nd, 2009 Posted by Steve Keen in Debtwatch56 CommentsThe First Home Owners Boost (as it is officially known) has certainly given the Government bang for its buck. By spending roughly $200 million of its own money to date, it has added about $3 billion to the housing market. But the additional $2.8 billion has come from increased mortgage debt taken on by those most vulnerable to a serious economic downturn, at a time when the latest “unexpected” increase in unemployment indicates that, like it or not, the global downturn is coming our way.


America tried a similar trick in 2000, when the collapse of the DotCom bubble threatened to cause a serious recession: it was called Subprime Lending. There should be little doubt now that that scam–which at the time received substantial government backing–simply delayed the day of reckoning, and made the eventual crisis much, much worse.

With Australia’s belated version of Subprime-Lite, we appear to be making the same mistake (The Sunday Telegraph made this issue their page one lead today–”House Price Crisis Looms”–and followed up with the feature Our home-grown sub-prime crisis). It’s on a smaller scale, and the borrowers aren’t so transparently uncreditworthy. But we are attempting to avoid an economic crisis caused by too much borrowing, by encouraging the poorest in our community to take on yet more debt.

Very few of those who’ve received the FHOB would qualify as Subprime as it was defined in America–a borrower actually had to have a poor credit history to get a Subprime loan. But First Home Buyers are, almost by definition, young and newly in the workforce. They will be amongst the first to lose their jobs when the downturn bites.

So while The Boost may give a temporary fillip to the bottom end of the housing market, the construction industry, and the economy, when unemployment continues its unexpected (there’s that word again!) rise, many First Home Buyers will be at the head of the dole queues. And as well as being unemployed, they will also be homeless and bankrupt.

Had they not been enticed into the housing market at absolutely the worst time by a misguided Government policy, they would still have lost their jobs. But at least they would not also be facing bankruptcy as well.

 

[kincella]

reply to jikx.....just because someone cannot afford to buy a house for say 500k....why do you deduce a seller would have to drop their price.....tell the buyer to go find a house he can afford....plenty around...
at a lower price.....no one owes the buyer anything at all....
so would you sell a house for say 450k...just because the buyer says he cannot afford the 500k...but there are other buyers there willing to pay the 500k....which would you do ?
and obviously this is not happening with houses at that price atm....they are being snapped up...

 

[apra143]

So while The Boost may give a temporary fillip to the bottom end of the housing market, the construction industry, and the economy, when unemployment continues its unexpected (there’s that word again!) rise, many First Home Buyers will be at the head of the dole queues. And as well as being unemployed, they will also be homeless and bankrupt.

Had they not been enticed into the housing market at absolutely the worst time by a misguided Government policy, they would still have lost their jobs. But at least they would not also be facing bankruptcy as well.

We can only hope that the lenders paid close attention to the borrowers credit history, employment stats, etc.

It is the worse possible time. Should've let the housing market drop more than it did, waited till employment figures levelled off and then entice the buyers back in with stimulus/incentives. What we have seen the government do is simply delay the inevitable.

Oh well, hope I am wrong.

 

[Glen48]

In USA you must state what is wrong with a House:
http://patrick.net/housing/contrib/asshole.jpg

 

[moXJO]

I have had yet another acquaintance buy a house. He borrowed the maximum he could (min deposit) after going to a variety of lenders. Funnily enough it was the CBA that gave him the most ($380k). He is now stretched to the limit on a single wage. And his wife is talking reno's before christmas.
He has been trying to explain there is no more money.

I often worry as this seems to be the norm with a lot of my friends. But if they can make the payments then best of luck to them. Not for me to rain on their parade.

How long can this go on in this environment I wonder

 

[MACCA350]

I have had yet another acquaintance buy a house. He borrowed the maximum he could (min deposit) after going to a variety of lenders. Funnily enough it was the CBA that gave him the most ($380k). He is now stretched to the limit on a single wage. And his wife is talking reno's before christmas.
He has been trying to explain there is no more money.

I often worry as this seems to be the norm with a lot of my friends. But if they can make the payments then best of luck to them. Not for me to rain on their parade.

How long can this go on in this environment I wonder

I've had a few agents mention they've had many FHB begging numerous lenders trying desperately to get finance for properties

You'd think that should tell them something, seems to me much of this FHB boost is being taken up by those who are borrowing to the hilt and will be repossessed given a slight change in interest rates or circumstance.

cheers

 

[Jikx]

reply to jikx.....just because someone cannot afford to buy a house for say 500k....why do you deduce a seller would have to drop their price.....tell the buyer to go find a house he can afford....plenty around...
at a lower price.....no one owes the buyer anything at all....
so would you sell a house for say 450k...just because the buyer says he cannot afford the 500k...but there are other buyers there willing to pay the 500k....which would you do ?
and obviously this is not happening with houses at that price atm....they are being snapped up...

Well, I will give you the essential logic of what I'm arguing. Fundamentally, the amount of money people have to buy houses is dropping - across all levels. From the bank's point of view:

1. They will lend less, that being lower debt to income and/or equity. General decrease in risk taking.
2. Rising unemployement, and greater risk that people they lend to cannot repay the lown.
2. House prices are dropping, which means they have greater risk that they cannot recoup money per 1. and 2.

This is affecting all people. Doesn't really matter how much you earn, the banks will now lend you less than previously. Now keeping that in mind, it's not that there'll be just a few buyers who could not pay as much as before, it's all buyers. The anecdotes show it (per above posts), and the lending levels show it. It's happening.

Now to touch on supply side of the housing debate. There are a number of private property players who are absolutely borrowed to the hilt, hitting 90% debt/equity. There's actually a lot of single property owners in the same situation. Supply will be added once unemployment starts rising, and these homes are forclosed. Banks will be very unwilling to allow refinancing as well.

You have the twin effects, increased supply, decreased demand all stemming from the banks risk avoidance and increasing unemployment. Our housing market will be extremely hurt by this, because the price of housing is supported by so much debt.

Essentially, less debt = lower house prices.

You'll see this happening towards the end of the year, when the impact of unemployement starts flowing through the economy. The magnitude on housing is anyones guess, but I'll make a punt at 30%.

 

[gfresh]

None of my friends (early 30's) can afford a job loss amongst either partner. None would have enough savings to get them by for more than a couple of weeks paying the mortgage.

 

[Glen48]

I think most FHO think the 20-30K some how goes into their pockets and they are that much better of and mortgage payments the same as rents low I R, house prices low there is no reason to buy and if you borrow to the hilt the more appreciation you will receive....sadly it is entrapment and because they in hock to the eye balls they won't be spending any where except to pay the rent to the Bank/s.

 

[Beej]

None of my friends (early 30's) can afford a job loss amongst either partner. None would have enough savings to get them by for more than a couple of weeks paying the mortgage.

Seriously? They haven't even got ahead on their mortgage payments at all? Even with the lowering of interest rates? The "standard" way to recession proof yourself is pay off as much of the mortgage as you can in the good times, and then if you find yourself in a worst case scenario (unemployment, illness, injury etc), you at least have a large buffer there that you can you use while you work out the next step in your strategy - be that find a new job/career, start a business, or sell up etc etc.

Cheers,

Beej

 

[kenny]

It worries me to hear these stories of couples and families choosing to "mortgage themselves to the hilt" with what seems to be coming up on the economic horizon. Do the lenders still consider any risk analysis of job security and such anymore? It might be nice if they mentioned such risks quietly to the applicants to think over even if they do qualify for the huge loans.

Beej, I agree with you in thinking that the median house price will tick up this quarter. If it does, it will almost certainly be due to the abnormal influence of the FHBG. Drilling into the data will probably reveal the gains made will be significantly limited to the sub $600's categories of residential properties and sadly bought on a high LVR.

In chatting to some REA's, the consensus seems to be almost a desperation by some FHB's to secure the grant even if it means compromising on the choice of property. Bizarre.

Cheers,

Kenny

 

[UBIQUITOUS]

Seriously? They haven't even got ahead on their mortgage payments at all? Even with the lowering of interest rates? The "standard" way to recession proof yourself is pay off as much of the mortgage as you can in the good times, and then if you find yourself in a worst case scenario (unemployment, illness, injury etc), you at least have a large buffer there that you can you use while you work out the next step in your strategy - be that find a new job/career, start a business, or sell up etc etc.

Cheers,

Beej

What buffer? You're contradicting yourself.

If you pay off as much of your mortgage as you say, then when you lose your job, you have NO BUFFER as you stupidly paid of your mortgage instead of saving it elsewhere.

If weekly income goes from $1000 to $0, where is the buffer?

 

[TradeDaily]

Youre ahead of your repayments and therefore can redraw monies to tie you over - otherwise you might have an offset account and dip into that until you get back on your feet. same diff.

 

[kincella]

couple of points....gfresh, I thought the Qld market was still overheated...so what price ranges are your friends buying at...and they are spending two incomes, with no savings ???

if all this talk amazes some people...are you also amazed at the speed the stock market jumps....is it the young and restless again...or reckless attitudes

 

[Trevor_S]

are you also amazed at the speed the stock market jumps....

Mr Market is manic-depressive and the prices he offers fluctuate wildly as his mood changes. But the good news is he cames back day after day with a new offer and you are under no obligation to either buy from or sell to Mr Market on any given day. Your challenge is to not be distracted by Mr Market's erratic behavior and to take advantage of outstanding opportunities presented by Mr Market as they arise.

Benjamin Graham

 

[Beej]

What buffer? You're contradicting yourself.

If you pay off as much of your mortgage as you say, then when you lose your job, you have NO BUFFER as you stupidly paid of your mortgage instead of saving it elsewhere.

If weekly income goes from $1000 to $0, where is the buffer?

You really don't understand how mortgages work do you??? See below:

You're ahead of your repayments and therefore can redraw monies to tie you over - otherwise you might have an offset account and dip into that until you get back on your feet. same diff.

Wot he said! Either method works. If you are say 5 years ahead of your contracted repayments then you can stop paying the mortgage for years if you need to (or fund payments interest only out of your offset account), and not have the bank coming a knocking..... try doing that with your land-lord when he asks for your monthly rent cheque!

Of course the renter can also have saved their pennies for a rainy day, but they will have paid tax on any interest earned, and their savings will not be reducing the rent they pay in the future. The home owners savings reduce their "rent" (ie interest payments) for ever, tax free, plus provide that buffer if required when hard times hit.

Beej